To better understand the evolving outlook for LNG and its role in the U.S. gas market, Fortnightly assembled a group of LNG specialists with various perspectives on the issues.
The Case That Mattered
What’s the story with AES Ocean Express?
their turbines. In making this argument, the electric generators pointed out that in a prior case, Columbia Gas Transmission Corp.,2 FERC had approved a pipeline’s proposal to compensate two sales customers for their costs of modifying equipment in order to accommodate the pipeline’s purchase of LNG to serve its customers.
Local distribution companies (LDCs) connected to the FGT system, also relying on Columbia Gas Transmission and subsequent FERC rulings, similarly argued that FERC should rule on the cost responsibility for moderating the impact of interchangeability with respect to imported LNG. The LDCs urged FERC to confirm how the costs for necessary mitigation measures will be allocated, and to specify the procedures by which the costs will be monitored, verified, and collected. Specifically, the LDCs argued that the mitigation costs should be borne by the LNG suppliers and project sponsors, because they are the parties that financially benefit from the importation of LNG.
FERC staff also argued that FERC should establish an appropriate mitigation cost-allocation methodology. Unlike the electric generators and LDCs that advocated that all mitigation costs be borne by the LNG sponsors and suppliers, staff recommended socializing the mitigation costs over all parties.
FGT strongly opposed the arguments that FGT include a mechanism in its rates to permit generators and LDCs to recover their mitigation costs from other parties. FGT stressed that FERC has no jurisdiction with respect to FGT’s electric-generation customers and LDCs, adding that the mitigation costs sought to be recouped by the electric generators and LDCs related to facilities that are not used and useful for a pipeline’s jurisdictional transportation service.
Not surprisingly, the LNG suppliers involved in the proceeding argued that they should not bear responsibility for mitigation costs because there was no showing that such costs were necessary. They argued that FERC lacks authority to direct payments among parties that are not subject to FERC’s jurisdiction, lacks jurisdiction to order payments for equipment upgrades from jurisdictional customers, and lacks authority to award damages or reparations. On a final note, the LNG suppliers pointed out that, contrary to the assertions of the electric generators and LDCs, in Columbia Gas Transmission Corp. FERC found that the pipeline, not the supplier, should reimburse affected customers for their mitigation costs.
A little more than one year after the ALJ issued the initial decision, after considering the record and the various arguments of the parties, FERC issued its 126-page opinion and order on the initial decision in AES Ocean Express. In its order, FERC generally upheld the ALJ’s decision to accept FGT’s proposed standards as just and reasonable, but found that the proposed standards are applicable to all gas tendered to FGT’s market area, not just to LNG. In addition, although FERC acknowledged that “the adopted standards could require owners of downstream appliances to incur certain incremental expenses to enable their equipment to use the gas delivered off the Florida Gas system,”3 FERC agreed with the ALJ that such mitigation costs were speculative. However, in an interesting turn, FERC disagreed with the ALJ regarding the future recovery of actual end-user mitigation